FTC files landmark lawsuit against local loan counselors

For an industry that’s recently received bad press both statewide and locally from advocates claiming it preys upon the financially vulnerable and needs better consumer protection, a new twist has been added in the form of a landmark lawsuit recently levied by the Federal Trade Commission (FTC) against a locally owned payday loan counseling center supposedly created to help consumers get out of what some consider predatory business practices.

According to Michelle Grajales, who works in the FTC’s Division of Financial Practices, this injunction is the first of its kind in the country levied by the FTC against a payday loan counseling firm.

“The FTC has filed cases in the credit card industry similar to this as well as against payday loan companies themselves for illegal practices, but this is the first time in memory that a payday loan counselor has been identified in an indictment,” Grajales said.

The lawsuit was filed Feb. 18 against two Mobile companies, Infinity Client Solutions and PSC Administrative LLC (formerly known as Payday Support Center LLC), as well as two executives, Jared Irby and Richard Hughes. The lawsuit accuses all parties involved of having violated the FTC’s ban on deceptive acts and practices as well as the telemarketing sales rule prohibiting abusive and deceptive telemarketing. The goal of the lawsuit, as stated in the indictment, is to put an end to the illegal activities and obtain refunds for victimized customers.

Payday Support Center and Infinity Client Solutions both shuttered their operations in March, which may or may not have been directly attributable to the lawsuit, according to Grajales. When contacted for comments for this story, executive Irby, named in the lawsuit, had no comment.

According to a press release, the FTC’s complaint is that, starting in 2012, the two companies used radio ads, Internet and telemarketing to target consumers who owed debt on multiple payday loans and then told consumers they would negotiate to get payments reduced and eliminate the debt. They also allegedly told the indebted consumers to stop making direct payments to their lenders and pay money to their “debt relief” companies instead, promising the loans would be paid off in four to six months.

“The defendants promised to help people struggling to make payments on their payday loans. Instead, they took the money and ran, leaving their customers deeper in debt,” Jessica Rich, director of the FTC Bureau of Consumer Protection, said in a statement.

Allegedly, the two companies told financially distressed consumers they qualified for a special “financial hardship program,” and that they would negotiate an “interest-free” payment on the loans through the program, which required the consumers to make biweekly payments to the companies instead of to the lenders. Payments typically were between $98 and $160.

However, the FTC’s complaint states the companies provided little or no debt relief services and lenders typically continued their collection efforts, leaving consumers deeper in financial trouble after paying hundreds of dollars in “debt relief” fees.

According to the indictment, the defendants ran radio ads saying:

Are payday loans ruining your life? Do you have more payday loans than you’re able to pay back right now? If you have two or more payday loan cash advances, listen closely. You may be eligible for a program that the payday loan companies don’t want you to know about, a program that will get payday loan companies out of your bank account and put an end to the payday loan nightmare. All you need is two or more payday loan cash advances to qualify. Even if you’re behind, in collections or have bad credit. We’ll even help you with your Internet payday loans.

A critical flaw pointed out by the FTC with respect to the defendants’ debt relief approach was that many, if not most, payday lenders ignore “validation form letters” and continue collection efforts on consumers for nonpayment. Furthermore, the validation program appears to mimic inapplicable provisions of the Fair Debt Collection Practices Act (FDCPA).

The FDCPA does in fact contain a section on “validation of debts” setting forth circumstances where consumers have the right, within a specific time period, to request the underlying data supporting collection attempts by those debt collectors covered by the statute. However, payday lenders collecting on their own behalf are not covered by the FDCPA in most situations.

The FTC vote approving the complaint was 5-0. It was filed in the U.S. District Court for the Southern District of Alabama.

Future timelines for the lawsuit include a discovery completion for all parties by Nov. 16, 2015, a final pretrial conference before Chief U.S. District Judge William Steele April 16, 2016, and a firm trial date to be set for some time in May 2016.

Per a press release, an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The FTC works for consumers to prevent fraudulent, deceptive and unfair business practices and to provide information to help spot, stop and avoid them. The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the United States and abroad. The FTC’s website provides free information on a variety of consumer topics.

About The Author

Ron Sivak has been the full-time business writer for Lagniappe Weekly since 2012. To date, Sivak handles all relevant local area business and real estate happenings in the Mobile and Baldwin County markets — both large and small — with a focus on job growth, new business development and commercial real estate news.
Sivak is also the host of Lagniappe’s “Real Deal with Ron Sivak” business podcast — a local production rolled out in June 2016 in partnership with Deep Fried Studios. The show takes a hard look at significant hyperlocal happenings impacting the South Alabama region. The Real Deal podcast is currently available for download on Apple iTunes, Libsyn, SoundCloud, Player FM and Stitcher Radio, among others.
Sivak is an active member of SABEW: Society of American Business Editors and Writers and participates in workshops at SABEW’s national conference annually. His background is deeply entrenched in business, with 18 years of experience in the Business Process Outsourcing (BPO) arena and a background of working for Fortune 500 companies in San Francisco, Atlanta and New Orleans. He is also a University of South Alabama graduate with a B.S. dual degree in Finance and Human Resource Management.
Sivak is also the owner of CHS Consulting, a BPO small business services firm and can be reached at [email protected]